Ninth Sees no Conflict in Credit-Reporting Class Suit

     PASADENA, Calif. (CN) – Attorneys in a class action against the major credit-reporting agencies won’t be disqualified based on conflict of interest, the Ninth Circuit ruled Monday.
     Beginning in 2005, several class actions were filed against Experian Information Solutions, Equifax Information Services and TransUnion. Consumers claim their credit reports contain entries of unpaid debts that should have been discharged in bankruptcy.
     The cases were eventually consolidated and plaintiffs’ lawyers were split into two groups that the court referred to as the “White” counsel and the “Hernandez” counsel.
     A $45 million settlement was reached following mediation in 2009. It included $5,000 incentive fee awards for class representatives who were “in support of the settlement.” The agreement was preliminarily approved in May of that year.
     The “White” attorneys, however, objected to the settlement in subsequent fairness hearings. They argued that conditioning the incentive awards on the class representatives’ agreement with the settlement created a conflict of interest, namely because lawyers were then put in the position of representing two distinct classes: the class representatives and the absent class of consumers, whose interests were not necessarily the same.
     The Ninth Circuit ultimately agreed that the “Hernandez” counsel was “simultaneously representing clients with conflicting interests” and reversed the settlement, as well as costs and attorneys’ fees.
     On remand in June 2013, the White counsel filed a motion to disqualify the Hernandez counsel and to serve as interim class counsel. The group argued that disqualification was mandatory under California law “because any counsel’s simultaneous conflict of interest in its representation of multiple clients must result in automatic disqualification.”
     U.S. District Judge David Carter denied the motion.
     The White counsel appealed to the Ninth Circuit where a three-judge panel on Monday affirmed the Carter’s ruling, finding that California’s automatic-disqualification rule does not necessarily apply to class actions.
     “The policy justifications that the California Supreme Court advanced for the automatic-disqualification rule are not fully transferrable to class action cases,” U.S. District Judge Jon Tigar, sitting in designation from the Northern District of California, wrote for the panel. “Indeed, the language of their opinions makes clear that they envisioned simultaneous conflicts of interest as they generally occurred in individual litigant suits rather than in class actions.”
     The panel acknowledged the conflict of interest, but said that trial courts have discretion to disqualify in class actions on a case-by-case basis. In the underlying case, the panel said Carter had every right not to disqualify.
     “We previously found that Hernandez counsel created a significant conflict of interest between themselves, their clients and the rest of the class, and nothing in the present order diminishes or qualifies that holding,” Tigar wrote. “We are not convinced, however, that the conflict we found requires automatic disqualification of class counsel. We believe that, given the unique ethical and due-process concerns involved in class actions, district courts must have the discretion to address attorney representation and disqualification issues based on details of each case, and we further believe the California Supreme Court would agree.”
     He added: “Accordingly, we hold that the district court did not abuse its discretion in denying White counsel’s motion to disqualify Hernandez counsel and to be appointed as class counsel, and granting Hernandez counsel’s cross-motion to be appointed as class counsel.”
     

%d bloggers like this: